Comcast: 2025 Looks Promising, But Can The Company Execute?
Contributor since 2023 / 2812 Followers
Summary:
- Comcast’s CEO outlines ambitious priorities for 2025, focusing on broadband expansion, mobile market penetration, and business services growth, but execution remains uncertain.
- Broadband growth is promising with plans to add 1.2 million homes, despite recent customer losses indicating fierce competition.
- Mobile efforts target a $180B market with features like mobile WiFi boosters, but differentiation from competitors remains a challenge.
- AI integration and focus on higher-margin businesses aim to improve efficiency and profitability, but the company’s competitive edge is still questionable.
SweetBabeeJay
Introduction
Comcast (NASDAQ:CMCSA) CEO recently had an interview at a conference where he discussed priorities for 2025 and how the company has been progressing regarding its main operations. I will discuss some of these briefly and give my thoughts in general. I believe there is a lot of promise for next year and beyond; however, the big question is, can the company execute on these promises? Time will tell, but I am still on the fence.
Priorities for 2025
In a recent interview, the company’s CEO and President, David Watson, discussed the company’s priorities for 2025. Let’s look at some of these and what has happened to the company over 2024.
Broadband Growth
I think the biggest revenue driver will be the company’s ability to expand its broadband services. In a recent conference, David Watson said that the company plans to add 1.2m homes to its current 63m homes, expanding its footprint further. He also said that the company’s competitive advantage is tremendous given its robust 1-gigabit product, which is specifically designed for the modern family pass time, like streaming and gaming. So, management expects broadband growth of around 20% for 2025, seeing that in 2024, the company added around 1m new homes. That sounds great. It looks like there is growth still coming up. However, he also mentioned that for the first half of the year, the company shed around 100,000 broadband customers per quarter and hinted that this is going to be the case for Q4 also. On this news, the company’s share price took a nosedive as investors did not like that comment at all. It seems that the competition is rather fierce in the space, and if it truly had a competitive advantage, as he said, we wouldn’t be seeing this exodus of customers every quarter.
Stepping Up Efforts on Mobile
Another big priority for the company in 2025 is its mobile efforts. The mobile market segment is more than double that of broadband. Watson specifically mentioned that the broadband market is around $70B of TAM, whereas the mobile market clocks in at around $180B. That is a significant market to tap into. However, that remains to be seen how the company is going to go about doing that next year. I would like to see some solid numbers on the company’s ability to take market share and continue to increase over the next year, and one feature that the CEO is very excited about is the mobile WiFi booster. This feature allows all connected devices in a single household to have boosted connectivity up to 1 gigabit, which decreases latency and lag for gaming, which is a big deal these days, as well as minimal interruptions while streaming your favorite shows. Or just browsing the Internet feels much smoother and much more responsive. That’s a good feature, sure, but I don’t think this is the killer tech that will give it the market share that it wants to take over the next few years. WiFi boosting is not unique to Comcast’s Internet; many, if not all, of the competitors have something similar. It may not be called a WiFi booster, but something along the same lines. For example, Charter (CHTR) also provides a feature for a whole-home WiFi solution with mesh network capabilities, while Verizon (VZ) has a thing called “Verizon Home WiFi,” which uses similar technology to improve overall household network performance.
Nevertheless, if the company succeeds in leveraging mobile and broadband bundling to attract customers via enhanced experience, maybe we will see a turnaround over the next couple of years, but that remains to be seen.
Business Services
Another major opportunity for growth is within the business services. According to the CEO, that opportunity is a $60B addressable market. Comcast has been working diligently to expand its reach through Ethernet over cable, with a focus on SMEs. The company also plans on adding 3.5m business passings next year. That is a hefty goal, in my opinion; however, I believe the focus on SMEs is the right call. SMEs’ outlook for the next year is a bit sketchy right now, given the macroeconomic backdrop. A recent survey done in the UK tells us that 85% of SMEs are very optimistic about future growth in 2025 and beyond. That may not translate for the US. However, many people felt a lot better off four years ago under the Trump Administration than under the Biden Administration, so maybe the optimism will be carried over now once Trump takes the helm once again next year.
Comcast has only penetrated around 20% of the $60B addressable market, so there is a lot of growth there; however, I’d say it is going to be tough to get a larger share of the pie as it all comes down to the offerings and what the competition is doing because all of the competition is thinking the same. Maybe there is a reason why Comcast hasn’t penetrated more than 20% of the TAM in Business Services.
ARPU Trends
With the exodus of customers every quarter, I am expecting the ARPU growth to slow down considerably. It wasn’t a strong growth to begin with; however, it is hard to imagine how the company is going to offset the customer declines by continuing to increase their prices. There is only so much you can increase the prices without losing even more customers, and people are quite price sensitive, especially if what they see other networks charge, and more often than not, is lower than what CMCSA is charging. To justify that, CMCSA has to provide a service that is much more valuable than the competition, and let’s face it; this service is a commodity these days. Most providers offer similar core services like high-speed Internet access, cable television, and home phone services.
To stand out, Comcast may have some differentiating factors, like bundle deals, which come with a decent price reduction. Although not unique to the company whatsoever, it could be a factor that sways customers.
The company is also heavily investing in technologies like DOCSIS 4.0, which, in essence, improves speeds and capacity. This should, in theory, provide a decent long-term competitive advantage as the rollout continues.
ARPU remained within the 3% to 4% range throughout the year, but as I said earlier, how long can this last if the company doesn’t stand out enough to justify the increases? It could be the case that every provider is increasing at the same pace, then yes, it is going to continue since everything is getting more expensive, however, in order to take market share, you’d have to undercut the competition and offer a better value. With the mobile integration within broadband, it should boost higher-tier subscriptions; the question is by how much.
DOCSIS 4.0 is positioned to become the standard for high-speed Internet, which should offer a significant upgrade to households and businesses alike; therefore, heavy investments by CMCSA here are very welcomed and should become a good value proposition in the long run.
What About Margins?
Looking at the latest quarter, Q3 2024, the company’s operating margins came in at around 18% vs 21.5% at the same time last year. For the nine months ended September 30, margins were around 20% in 2024 vs around 21% in 2023. So, we can see that the company is losing some of its efficiency and profitability. What can the company do to improve this? Well, it seems that the answer, according to the CEO, is AI. I know, big surprise. Additionally, Watson has emphasized the need to switch to higher-margin businesses and away from lower-margin video services, which will come naturally as cord-cutting continues. This way, there should be a substantial improvement in the long run. On top of this business transition, AI integration could lead to efficiency also. It has been said that the company has been deploying AI across its networks to enhance performance, and one of the metrics that seem to be rather positive is the networks began to self-heal using AI a lot more consistently. Around 60% of network alerts are self-healed this way, minimizing the need for manual intervention, thus, in theory, improving efficiency. Again, it is hard to put a number on this sort of improvement, but it cannot hurt. The company has also started using AI to help with customer services and repair by using automated responses. These days, AI chatbots are much more advanced than just a few years ago. I recently had a run-in with an AI chatbot at Amazon (AMZN), and the difference was astounding. I hope CMCSA’s AI customer service is at least half as good as Amazon’s. Furthermore, the company is also improving with the help of AI, self-installation kits, or SIK. By using AI, the company can do a lot more, like instant delivery of products, get rid of bad transactions, and focus on good transactions, potentially reducing the noise in the system.
The company is also focusing on managing fixed costs thoroughly, which involves consistent reviews and optimization efforts. This way, the company can make adjustments much quicker than what is the norm, which is a periodic review of operations. That can be seen as slow.
Closing Comments
So, there are promising ways the company can see overall improvements in operations. Now, what the management needs to do is to deliver on these hefty promises (in my opinion). On paper, they all look great. It seems that the company has everything planned correctly for 2025 and beyond, but what is left to do is to wait and see.
There are a lot of questions for me in terms of the company’s competitiveness and what it perceives its competitive advantages to be, which I don’t think that’s the case right now. The competition offers a similar experience, similar price points, and features, so for CMCSA to come out on top, the management team needs to think long and hard. So far, it has not been working out the way it wanted.
Cord-cutting is a real threat, and there is no doubt in my mind it will go to zero eventually. The management needs to be more assertive in embracing the future and continue to invest heavily in what looks like the future of the Internet. But I’m sure it is not going to be easy because the competition is not going to sit around.
The company needs to show us proof that all the above is going to pan out the way the CEO has said, and the best way to see it is through quarterly reports next year. Right now, I remain on the fence.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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